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Chartered Financial Analyst Level 2

Chartered Financial Analyst Level 2

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34 An analyst gathers the following information about two companies:

Company ACompany B
Outstanding debt$22 billion$4 billion
Number of shares outstanding500 million125 million
Share price$100$45

Company A recently announced its intent to acquire Company B. To fund the acquisition, Company A will issue 50 million new shares, raise $7 billion in new debt, and fund the remainder with cash on hand. Company A will also repay Company B's outstanding debt using proceeds from the debt issuance. The book value of Company A's debt is equal to its market value. If the share prices remain unchanged following the acquisition, the weight of debt in Company A's capital structure as a result of the acquisition of Company B is closest to:

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